Monday, April 17, 2006

TD Bank Raises its US Profile

Canadian Press, 17 April 2006

Fresh on the heels of its latest U.S. expansion, TD Banknorth Inc. is eyeing more acquisitions in the prosperous New England states over the next few years as it bolsters awareness of its American-based brands.

“If we had a perfect world, I’d love to buy a small bank in Massachusetts, in Connecticut and the mid-Atlantic region,” TD Banknorth CEO Bill Ryan said in a conference call.

“I think we could do one or two a year for the next few years, and maybe every 18 months we can do a larger acquisition. I still see a number of smaller banks that — because of the cost of regulation, the cost of computerization — are going to want to join somebody over the next few years.”

TD Banknorth, the majority-owned subsidiary of Toronto-based TD Bank Financial Group, has been on a U.S. expansion streak over the last two years.

On Thursday it announced plans to acquire Interchange Financial Services Corp. for $480.6 million, catapulting it to ninth place in the lucrative New Jersey market. There are plans to close eight to 12 branches to realize synergies of about $13.6 million in 2007.

“This is a perfect fit,” Ryan said. “It’s our sweet spot of $1 billion to $3 billion in assets, so we are really in a pretty good position.”

Headquartered in Saddle Brook, N.J., Interchange had $1.6 billion in assets and $1.3 billion in deposits at Dec. 31, and operates 30 branches in Bergen and Essex counties — which have some of the highest median household incomes in America.

“The demographics of this market are just outstanding,” observed Ryan.

The all-cash transaction would not only enlarge TD Banknorth’s footprint in that key northern U.S. state, but would also allow TD Bank to boost its stake in the subsidiary to 58.6 per cent.

The deal will be financed primarily through the sale of 13 million shares of TD Banknorth to TD Bank Financial Group at a price of $31.17 per share, for a total of $405.2 million.

“We also believe this acquisition is a great add-on to the footprint that TD Banknorth gained with the Hudson transaction and is right on the strategy that we want execute via TD Banknorth,” said Colleen Johnston, TD Bank’s chief financial officer.

Earlier this year, TD Banknorth completed its $1.9-billion (U.S.) cash and stock acquisition of Hudson United Bancorp Inc. and the sale of its TD Waterhouse U.S.A. brokerage division to Ameritrade Holding Corp. in exchange for a large stake in the combined U.S. company.

With domestic big-bank mergers on hold indefinitely, analysts say Canadian banks are hungry for scale and are looking to ride a wave of U.S. consolidation.

BMO Financial Group has also been bulking up its U.S. presence through its Chicago-area subsidiary Harris Bankcorp and is actively scouting for deals worth up to $2 billion.

RBC Financial Group also plans to ramp up its presence in the Atlanta and Florida markets with 15 to 20 new branches per year starting in 2007.

While plenty of U.S. opportunities still exist, it is a market that has proved challenging to Canadian entrants in the past. In 2005, RBC exited its U.S. mortgage business after suffering operational challenges in that division.

For its part, TD Banknorth said its Interchange acquisition — its 27th such deal — is a great opportunity to grow “in a way that doesn’t risk the company.”

Meanwhile, its Toronto-based parent, Canada’s No. 3 bank, also said it is eager to be recognized as a major player in that rapidly-consolidating market and has kicked off a $25-million (U.S.) advertising blitz to support its U.S. brands.